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A Note on the impact of the United States federal budget deficit on the intermediate-term interest rate, 1960-94

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  • Richard Cebula

Abstract

There is an extensive literature investigating the impact of federal budget deficits in the US on interest rate yields. This literature focuses almost entirely on short-term rates (under one year to maturity) and long-term rates (ten years or more to maturity). However, almost no attention has been directed at intermediate-term interest rate yields, that is yields on bonds maturing more than one year and less than ten years in the future. Also, this literature essentially ignores the second half of the 1980s and the 1990s. Accordingly, this note empirically investigates the impact of budget deficits in the US on the interest rate yield on three-year US Treasury notes for the period 1960 through the end of 1994. Based on OLS and IV estimates, two of which include net international capital inflows, it is found that budget deficits do raise intermediate-term rates, which may strengthen arguments that budget deficits lead to crowding out.

Suggested Citation

  • Richard Cebula, 1997. "A Note on the impact of the United States federal budget deficit on the intermediate-term interest rate, 1960-94," Applied Economics Letters, Taylor & Francis Journals, vol. 4(11), pages 711-714.
    • Handle: RePEc:taf:apeclt:v:4:y:1997:i:11:p:711-714
    DOI: 10.1080/758530655
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    Cited by:

    1. Carlos Vieira, 2004. "The Deficit?Interest Rate Connection: an empirical assessment of the EU," Economics Working Papers 5_2004, University of Évora, Department of Economics (Portugal).

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